Gold Still Sliding

After a vigorous rally that began in August gold hit a wall this month when it reached the resistance line drawn across the February high. Since then it has dropped nearly 5%, moving at a faster rate than would be justified by the recent strength of the dollar. We can see support from the next rising trend line, but we think we need to look at a longer-term chart to get the best perspective.

On the weekly chart below we can see that the rally actually effected a breakout from a triangle that contained the consolidation following the rally from th 2008 low, and price is currently pulling back toward the breakout point. This is a normal reaction, although it is not a pleasant experience. Such pullbacks don't normally drop all the way back to the line, but gold is more volatile than other price indexes. Note how in 2009 a full pullback after breakout took place.

Conclusion: While gold feels as if it is falling apart at the moment, the breakout looks convincing, and there is still good reason to expect that the decline will be halted by the support lines.